Willy Wonka market?

Some thoughts by Hussman on the market climate.

In the classic version of Charlie and the Chocolate Factory, Gene Wilder watches one child after another ignoring every cautionary warning, with predictably bad consequences. His deadpan appeals become increasingly halfhearted and emotionless because he knows they won’t listen anyway. We’re strongly defensive based on historical evidence that is in the most negative 0.5-1.5% of all historical observations, but it’s clear that others are willing to take significant market risk here, not as part of a long-term investment discipline or as part of a balanced portfolio strategy, but simply as a speculation – in the belief that they’ll be able to take their profits and get out before other speculators do. Our only response to these speculators is to quote Willy Wonka: “I wouldn’t do that. I really wouldn’t. No… Stop… Don’t.”

Market Climate

As noted above, the Market Climate for stocks remains particularly hostile on the basis of a variety of hostile indicator syndromes – particularly the joint overvalued, overbought, overbullish, rising-yield condition at present – as well as a uniform deterioration in market internals. Strategic Growth and Strategic International remain tightly hedged. Strategic Dividend Value is hedged at 50% of the value of its stockholdings, which is its most defensive stance. In Strategic Total Return, we added a few percent to our precious metals holdings on the selloff early last week. The Fund presently has a duration of less than 3 years in Treasury securities, with about 8% of assets in precious metals shares, and about 2% of assets in utilities and foreign currency holdings.

Full article here.